Silver Linings in LatAm

While ABS activity in Latin America is still slumping and the region lacks the aggressive repo programs of central banks in the U.S. and Western Europe, signs of hope are materializing.

Scotiabank Peru, for instance, sent out a request for proposals to a number of banks active in the sector of diversified payment rights (DPRs). The bank would be following in the footsteps of three Peruvian peers: DPR veteran Banco de Credito del Peru (BCP), Banco Continental - which made its DPR debut only last year - and Banco Internacional del Peru (Interbank), which was due to price its second DPR deal on June 5.

Given the market climate, the Interbank transaction has taken some time to close (ASR, 3/5/09). The latest talk is that Dutch development bank FMO will take a chunk. A source familiar with the transaction - currently foreseen at between $100 million and $150 million - said there may be different tenors.

The FMO purchased a subordinated tranche of a DPR transaction issued by BCP in the late 90s, according to a banker familiar with future flows. The current Interbank transaction does not have a senior-sub structure, which, in the DPR universe, appears to have been employed only for the BCP deal.

Meanwhile, ratings activity was not all negative in May. On May 28, Fitch Ratings upgraded the future flow deals originated by iron ore producer Vale to 'BBB+' from 'BBB'. The move came after the company climbed a notch on Fitch's scale thanks to a strong business profile that enabled it to sustain robust cash flows despite a bearish turn in the commodity market. As of March, the outstanding balance on the notes was $192 million, a mere 1% of the company's total debt.

Finally, ABS investors in Mexican basket case Metrofinanciera will finally be getting some answers from the originator. The company has set up a June 11-June 12 meeting to present a restructuring proposal to bondholders with paper backed by bridge loans. In a filing with local regulators, Metro said the proposal could include a haircut. No such meeting has yet been arranged for holders of the issuer's mortgage loans, according to an official at Metro.

Ratings in these deals have plummeted to near-default levels due largely to mismanagement of funds.

In late November, Metro revealed that it owed the financial trusts of its securitized debt about Ps4.19 billion ($317 million) as of the end of the third quarter of 2008.